INDEMNITY AND CONTRACT CLAUSES
JANUARY 18, 2013
CFMA – Sacramento Chapter
J. Scott Alexander
Ken Schumaker
Murphy Austin Adams Schoenfeld LLP
304 “S” Street, Sacramento, CA 95811
916.446.2300
www.murphyaustin.com
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INDEMNITY LAW
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the information contained in this presentation is current at the time
of the presentation. Because laws and legislation are constantly
changing, please contact us if you are unsure whether this material
is still current. Nothing contained herein should be construed as
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contents are intended to be for general information purposes only.
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information contained in this presentation. Please contact us to
answer any questions you may have.
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INDEMNITY LAW
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Key Indemnity Statutes found at Civil Code section 27822782.96.
Old way to analyze indemnity: 3 “Types” of Indemnity – Types I
(most onerous type), II (passive negligence) and III (limited to
only indemnitor’s conduct).
Old law - could not be indemnified for sole negligence or willful
misconduct
Duty of indemnity v. duty to defend – what does this mean?
On residential projects, no indemnity for negligence of others –
what about commercial/public works projects?
INDEMNITY LAW CHANGES 2013
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New language in Civil Code section 2782(b)(2) and (c)(1) as of January
1, 2013 for public works contracts (expands prior language to now
include subcontractors and suppliers) and commercial projects:
(b) (1) Except as provided in Sections 2782.1, 2782.2, and 2782.5,
provisions, clauses, covenants, or agreements contained in, collateral to,
or affecting any construction contract with a public agency entered into
before January 1, 2013, that purport to impose on the contractor, or
relieve the public agency from, liability for the active negligence of the
public agency are void and unenforceable. (2) Except as provided in
Sections 2782.1, 2782.2, and 2782.5, provisions, clauses, covenants, or
agreements contained in, collateral to, or affecting any construction
contract with a public agency entered into on or after January 1, 2013,
that purport to impose on any contractor, subcontractor, or supplier of
goods or services, or relieve the public agency from, liability for the
active negligence of the public agency are void and unenforceable.
INDEMNITY LAW CHANGES 2013
(c) (1) Except as provided in subdivision (d) and Sections 2782.1, 2782.2,
and 2782.5, provisions, clauses, covenants, or agreements contained in,
collateral to, or affecting any construction contract entered into on or
after January 1, 2013, with the owner of privately owned real
property to be improved and as to which the owner is not acting as a
contractor or supplier of materials or equipment to the work, that purport
to impose on any contractor, subcontractor, or supplier of goods or
services, or relieve the owner from, liability are unenforceable to the
extent of the active negligence of the owner, including that of its
employees. (2) For purposes of this subdivision, an owner of privately
owned real property to be improved includes the owner of any interest
therein, other than a mortgage or other interest that is held solely as
security for performance of an obligation. (3) This subdivision shall not
apply to a homeowner performing a home improvement project on his or
her own single family dwelling.
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INDEMNITY LAW CHANGES 2013
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New language in Civil Code section 2782.05 as of January 1, 2013 for general
contractor/subcontractor contracts:
(a) Except as provided in subdivision (b), provisions, clauses, covenants, and
agreements contained in, collateral to, or affecting any construction contract and
amendments thereto entered into on or after January 1, 2013, that purport to
insure or indemnify, including the cost to defend, a general contractor,
construction manager, or other subcontractor, by a subcontractor against liability
for claims of death or bodily injury to persons, injury to property, or any other
loss, damage, or expense are void and unenforceable to the extent the claims arise
out of, pertain to, or relate to the active negligence or willful misconduct of that
general contractor, construction manager, or other subcontractor, or their
other agents, other servants, or other independent contractors who are responsible
to the general contractor, construction manager, or other subcontractor, or for
defects in design furnished by those persons, or to the extent the claims do not
arise out of the scope of work of the subcontractor pursuant to the
construction contract. This section shall not be waived or modified by
contractual agreement, act, or omission of the parties…
INDEMNITY LAW CHANGES 2013
SO WHAT DO THESE CHANGES MEAN?
 No longer do/can we have Type I provisions.
 Levels the playing field. Subcontractors greatly benefit.
 What is active negligence? How is it different than passive negligence?
 On indemnity side, easy to understand, but determination is usually done
by trier of fact and defense duties are not always clear.
 The overall intent of the changes is to "ensure that every construction
business in the state is responsible for losses that it, as a business, may
cause." The laws apply to construction performed on property located in
California even if the parties have attempted to opt out of these changes
or have agreed to a non-California choice of law provision in their
contract. Cal. Civ. Code §§ 2782.05(c), (d).
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INDEMNITY CLAUSES
Sample Subcontract Clause Using New Law:
INDEMNIFICATION. To the fullest extent permitted by law,
Subcontractor shall indemnify, defend and hold harmless
Owner and Contractor, including their officers, agents, employees,
affiliates, parents and subsidiaries, and each of them
(“Indemnified Parties”), of and from any and all claims,
demands, causes of action, damages, costs, expenses, actual
attorneys’ fees, losses or liability, in law or in equity, of every
kind and nature whatsoever (“Claims”) arising out of or in
connection with any act or omission of Subcontractor or any subsubcontractor of any tier or anyone that Subcontractor or its subsubcontractors control or exercise control over, or Subcontractor’s
work or operations performed or to be performed under, or breach
of, this Agreement, including, without limitation, for:
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INDEMNITY CLAUSES
a. Personal injury or property damage, including, but not limited to, bodily injury, emotional injury,
sickness or disease, or death to persons, including, but not limited to, any employees or agents of
Subcontractor, Owner, Contractor, or any other subcontractor and/or damage to property of anyone
(including loss of use thereof), caused or alleged to be caused in whole or in part by any negligent
act or omission of Subcontractor or anyone directly or indirectly employed by Subcontractor or
anyone for whose acts Subcontractor may be liable regardless of whether such personal injury or
damage is caused by a party indemnified hereunder.
b. Penalties imposed on account of the violation of any law, order, citation, rule, regulation, standard
ordinance or statute, caused by the action or inaction of Subcontractor.
c. Infringement of any patent rights which may be brought against the Contractor or Owner arising out of
Subcontractor’s work.
d. Claims and liens for labor performed or materials used or furnished to be used on the job, including all
incidental or consequential damages resulting to Contractor or Owner from such claims or liens.
e. Subcontractor’s failure to fulfill the covenants set forth in Labor Relations
f. Failure of Subcontractor to comply with insurance requirements
g. Any violation of infraction by Subcontractor of any law, order, citation, rule, regulation, standard,
ordinance or stature in any way relating to the occupational health or safety of employees,
including, but not limited to, the use of Contractor’s or other’s equipment, hoist, elevators, or
scaffolds.
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INDEMNITY CLAUSES
The indemnification provisions herein, including, without limitation, of (a) through (g) above shall extend to claims
occurring after this Agreement is terminated as well as while it is in force. Subcontractor, however, shall not be
obligated under this Agreement to indemnify, including the cost to defend, the Indemnified Parties for Claims
arising out of, pertaining to, or relating to the active negligence or willful misconduct of the Indemnified
Parties, or for defects in design furnished by such persons, or to the extent the Claims do not arise out of the
scope of work of the Subcontractor pursuant to this subcontract. However, Subcontractor shall be responsible
for the portion of the claim attributable to its share of the cost.
Subject to the requirements above, Subcontractor shall: (a) At Subcontractor’s own cost, expense and risk, defend all
Claims as defined above that may be brought or instituted by third persons, including, but not limited to,
governmental agencies or employees of Subcontractor, against Contractor or Owner or their agents or employees or
any of them; (b) pay and satisfy any judgment or decree that may be rendered against Contractor or Owner or their
agents or employees, or any of them, arising out of any such Claim; and/or (c) Reimburse Contractor or Owner or
their agents or employees for any and all legal expense incurred by any of them in connection herewith or in
enforcing the indemnity granted .
Risk of Loss. All work covered by this Agreement done at the site or in preparing or delivering materials or equipment, or
any or all of them, to the site shall be at the risk of Subcontractor exclusively until the completed work is accepted
by Contractor.
No Limitation of Liability. The indemnities set forth in this section shall not be limited by the insurance
requirements set forth in the Insurance Requirement section.
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INDEMNITY CLAUSES
RECENT CASES:
 Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541 - For
all residential construction contracts entered into before January 1,
2006, a properly worded contract can compel a subcontractor to
immediately defend a builder regardless of whether the subcontractor
is ultimately required to indemnify the builder or even found to be at
fault. Waiver of consequential damages.
 UDC-Universal Development, L.P. v. CH2M Hill (2010) 181 Cal.
App. 4th 10 - a design professional had a duty to defend the developer
of a condominium project as soon as the developer tendered the
defense request to the design professional, independent of any duty to
indemnify, and irrespective of a finding by the jury of no negligence
and no breach of contract in favor of the design professional.
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INDEMNITY CLAUSES
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Civ.C. § 2782.9 – Voids indemnity agreements pertaining
to residential construction projects covered by a wrap-up
(consolidated) insurance program.
Trend Away From Rigid Type-Classification Of
Indemnity Agreements - Regardless of the general
classifications for indemnity agreements, courts will look
to the specific wording of the agreement to determine
how the agreement should be applied. See, Continental
Heller Corp. v. Amtech Mechanical (1997) 53
Cal.App.4th 500; Centex Golden Const. v. Dale Tile Co.
(2000) 78 Cal.App.4th 992.
“Battleground” Prime Contract
Provisions
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CPM schedules, delays, time extensions and
liquidated damages.
Dispute Resolution.
Grounds for withholding monies.
“Battleground” Prime Contract
Provisions
DELAYS AND TIME RELATED ISSUES:
 Acceptance v. approval of schedules.
 Requirements for baseline schedule and updates – CPM
schedules?
 “No damage for delay” clauses.
 Defining compensable and non-compensable delays.
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“Battleground” Prime Contract
Provisions
DISPUTE RESOLUTION:
 Litigation v. Arbitration.
 “Meet and confer” and mediation as pre-conditions to
formal proceedings.
 Do you include an attorneys’ fees provision?
 Venue provisions – can you require the parties to litigate
somewhere other than where the project is located?
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“Battleground” Prime Contract
Provisions
WITHHOLDING: Disputes over grounds for withholding.
Examples of disputed provisions include:
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Timely notice of withholding and time to cure by contractor;
Defective Work not remedied;
Third party claims filed or reasonable evidence indicating
probable filing of such claims;
Failure of the contractor to make payments properly to
subcontractors or for labor, materials or equipment,
reasonable evidence that the Work cannot be completed for
the unpaid balance of the Contract Sum;
“Battleground” Prime Contract
Provisions
WITHHOLDING:
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Reasonable evidence that the Work will not be completed
within the Contract Time, and that the unpaid balance
would not be adequate to cover actual or liquidated
damages for the anticipated delay; or
Persistent failure to carry out the Work in accordance with
the Contract Documents.
“Battleground” Subcontract
Provisions
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“Pass Through” claims of subcontractors.
Terminations
Warranties
Incorporating “proposals” and order of precedence clauses.
Timing of payments/”pay if paid/pay when paid” clauses.
“Battleground” Subcontract
Provisions
“PASS THROUGH” CLAIMS:
 Subcontractor claim for which owner is responsible must be
“passed through” and sponsored by prime contractor (except
for stop notice claims).
 Who pays for pass through claim and what level of
cooperation is required?
 Who is responsible for a false claim?
 Certification of claim
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“Battleground” Subcontract
Provisions
TERMINATIONS:
 Time/notice to cure prior to termination.
 What level of breach/default allows for termination?
 Costs recoverable for terminations for convenience.
 Waiver of claims?
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“Battleground” Subcontract
Provisions
WARRANTIES:
 Length of express warranties? One or two years.
 Time of commencement of warranties.
 Difficulties when manufacturer’s warranties
commence upon installation of product/equipment
at project.
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“Battleground” Subcontract
Provisions
PROPOSALS/INCORPORATION:
 Subcontractors desire to include proposals and all exclusions therein.
 Do proposals take precedence over subcontract, prime contracts, and
plans/specifications?
 Incorporation by reference: what if you haven’t seen all of the prime
contract documents?
 Order of precedence clauses.
 “More stringent” requirements?
 Site inspection clauses – to what standard should a subcontractor
reasonably be held?
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“Battleground” Subcontract
Provisions
TIMING OF PAYMENTS/WITHHOLDINGS:
 Notices to cure prior to withholdings.
 Final payment to subcontractor after full project
completed or within time period after subcontractor
completes its work?
 Payment of change orders – can payment be limited
to what owner pays prime contractor?
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